Microsoft (MSFT) Q1 2027 Earnings Call Transcript

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DATE

Wed, Oct. 28, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer – Satya Nadella
• Executive Vice President and Chief Financial Officer – Amy Hood
• Chief Accounting Officer – Alice Jolla
• Deputy General Counsel and Corporate Secretary – Brian DeFoe
• Vice President, Investor Relations – Jonathan Neilson

TAKEAWAYS

• Revenue — $92.3 billion, representing 19% growth driven by strong demand across the Microsoft Cloud platform.
• Non-GAAP EPS — $4.89, an 18% increase reflecting platform efficiency gains and revenue growth, adjusted for investments in OpenAI.
• Microsoft Cloud Revenue — $63.9 billion, growing 30% year over year with acceleration supported by Azure and M365 Commercial Cloud.
• Azure Revenue — 48% growth, ahead of expectations due to performance in Foundry and improved CPU monetization despite third-party capacity delays.
• Commercial Remaining Performance Obligation — $677 billion, a 73% increase featuring a weighted average duration of 2.3 years.
• Capital Expenditures — $45.2 billion, with 75% of spend allocated to short-lived assets like CPUs and GPUs for AI infrastructure.
• Foundry Revenue — more than tripled year over year, aided by efficiency gains in the GPU fleet and higher revenue per token.
• Copilot Adoption — daily users grew nearly 50% quarter over quarter, while the number of customers with more than 50,000 seats increased over eightfold.
• GitHub Advanced Security Revenue — grew over 50% year over year as customers utilized AI to scan repositories and fix vulnerabilities in real time.
• M365 Commercial Cloud Revenue — $27.8 billion, an 18% adjusted increase when normalizing for prior-year revenue recognition benefits.
• Fabric and Foundry Adoption — 44,000 paid Fabric customers and 120,000 Foundry customers, representing over 50% and 300% growth respectively.
• Windows OEM Revenue — declined 27% due to inventory drawdowns by partners and weaker PC market demand.
• Xbox Content and Services Revenue — decreased 2% year over year, reflecting declines in third-party content and Game Pass subscriptions.
• Search and Advertising Revenue — increased 12% excluding traffic acquisition costs, driven by higher volume and rates across Bing and Edge.
• Cash Flow from Operations — $58 billion, a 29% increase resulting from strong cloud billings and collections.
• Second Quarter Revenue Guidance — $96 billion to $97.1 billion, representing 18% to 19% growth.
• Azure Q2 Guidance — 49% to 50% growth in constant currency, supported by continued efficiency gains across the compute fleet.
• Calendar Year CapEx Outlook — approximately $170 billion, reflecting an acceleration in the second half of the year.
• AI Agent Registry — over 50 million agents registered in Agent 365, representing a 30% increase quarter over quarter.
• PostgreSQL Adoption — growth accelerated for the fourth consecutive quarter, with 90% of these customers also utilizing Foundry.
• Healthcare Automation — 30 million patient encounters automated this quarter, representing a 70% increase year over year.
• Maia 200 Performance — delivers 1.7-fold more tokens per watt across AI experiences in Teams and Copilot compared to previous systems.
• LinkedIn Engagement — members reached over 1.4 billion, with time spent viewing content in the feed increasing 15% year over year.
• Copilot Query Efficiency — 90% of queries utilized Auto mode to dynamically route tasks across models for optimized speed and quality.
• GAAP Net Income — $36.6 billion, representing a 32% increase.

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RISKS

• Hood stated, “some third-party capacity deliveries we expected in Q1 were delayed,” which impacted capital expenditures and the timing of supply availability.
• Hood noted that results were partially offset by “weaker sales execution in our M365 E3 and stand-alone SKUs” during the quarter.
• Management warned that Windows OEM revenue was below expectations due to “inventory drawdowns by OEM and channel partners and weaker PC market demand.”

SUMMARY

Microsoft Corporation (MSFT -0.06%) reported first quarter results featuring accelerated growth in its cloud business and the introduction of a unified Copilot experience. Management stated that the company is building a new technology stack centered on agentic AI, with Foundry and Fabric emerging as primary drivers for enterprise adoption. The company is scaling its global infrastructure, adding 24 data centers this quarter, while focusing on platform-wide efficiency to manage increasing capital expenditures. Management reported that customer demand for AI services continues to exceed available supply, prompting planned CapEx acceleration to over $50 billion in the second quarter.

• Nadella described Copilot as the “new OS for work,” noting that automated tasks have nearly doubled since July.
• Management reported that the MAI-Base-2 model demonstrated fourfold to 12-fold greater training compute efficiency compared to tested open weight models.
• The company introduced 30 new Copilot skills for Dynamics 365, integrating CRM and ERP capabilities directly into daily workflows.
• The company expanded its Perception security suite with new capabilities to secure and contain agentic insiders through dynamic permissions and risk assessment.
• Hood stated that the company expects to remain free cash flow positive in fiscal year 2027 while maintaining flexibility to access additional funding if attractive.
• The GitHub platform saw a sixfold increase in agent-generated pull requests over the past six months, with agents now opening more than one-third of all requests.

INDUSTRY GLOSSARY

• Copilot: Microsoft’s unified AI interface that integrates chat, coding, and office productivity tools.
• Foundry: A platform within Azure used to build and deploy AI agents and manage learning loops.
• Fabric: An all-in-one analytics solution that covers data movement, data science, and real-time analytics.
• Agent 365: A platform for AI observability that allows organizations to manage, secure, and monitor AI agents.
• Azure OpenAI: A service providing REST API access to OpenAI’s language models.
• WorkIQ: A service that provides agentic workloads with context from Microsoft 365 data.
• Maia: Microsoft’s custom-designed AI accelerator chips optimized for cloud-based training and inferencing.
• MXC (Microsoft Execution Containers): A policy-driven layer used to govern and contain AI agents.
• TAC (Traffic Acquisition Costs): Payments made by search engines to affiliates for directing traffic to their websites.
• Constant Currency: A reporting method that eliminates the effects of foreign exchange rate fluctuations for comparison purp

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